Assiduous Reader JP (who always sends me interesting links, unlike most of you) sent me a link a while ago about metals demand in China:
China’s steel and metals markets, a barometer of the world’s second-biggest economy, are “a lot worse than you think,” according to a Bloomberg Intelligence analyst who just completed a tour of the country.
What he saw: idle cranes, empty construction sites and half-finished, abandoned buildings in several cities. Conversations with executives reinforced the “gloomy” outlook.
“China’s metals demand is plummeting,” wrote Kenneth Hoffman, the metals analyst who spent a week traveling across the country, meeting with executives, traders, industry groups and analysts. “Demand is rapidly deteriorating as the government slows its infrastructure building and transforms into a consumer economy.”
This has been reflected in other statistics …:
A Chinese manufacturing gauge fell to a 12-month low in April, suggesting government efforts to cushion a slowdown are yet to revive the nation’s factories.
The preliminary Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics was at 49.2, missing the median estimate of 49.6 in a Bloomberg survey, which was also March’s final reading. Numbers below 50 indicate contraction.
The first reading of the economy’s health in April may deepen concern over a slowdown after first-quarter data showed the weakest economic expansion since 2009. Policy makers have stepped up efforts to halt the slide, cutting banks’ reserve requirements by 1 percentage point this week.
The true cost of the debt that China’s real estate developers peddled to eager international investors during a five-year property boom is now becoming clear.
Having found themselves shut out of local bond and loan markets seven years ago, a band of developers began looking elsewhere for funds. First an initial public offering, and then a dollar bond sale. It became a well-trodden path. By 2010, a core group of four — Kaisa Group Holdings Ltd., Fantasia Holdings Group Co., Renhe Commercial Holdings Co., Glorious Property Holdings Ltd. — raised a total of $5.6 billion. On Monday, Kaisa buckled under $10.5 billion of debt and defaulted.
China’s home builders became the single biggest source of dollar junk debt in Asia amid government measures to prevent a property bubble. Developers already funneled $78.8 billion from international equity and bond markets into an industry that’s grown to account for one third of the world’s second-biggest economy. Most of the first rush of dollar offerings, in 2010, falls due in the next two years.
In fact, manufacturing data globally is no great shakes:
Manufacturing Purchasing Managers Indexes disappointed everywhere today.
Japan, China, France, Germany and the U.S. all had PMI reports out today that missed expectations. Japan, China and France had readings below 50, signifying contraction.
It is a continuation of a 2015 downward trend for Japan and China, a continuation of sub-50 numbers for France and a reversal for Germany and the U.S., which had been producing some great numbers so far this year.
Deutsche Bank was subjected to yet another round of regulatory extortion:
Deutsche Bank AG was ordered to pay a record $2.5 billion fine and fire seven employees to settle U.S. and U.K. investigations into its role in rigging Libor.
Deutsche Bank must terminate six London employees and one in Frankfurt who engaged in wrongful conduct, according to New York’s Department of Financial Services, which was among the international regulators involved in the settlement announced Thursday. While the DFS didn’t identify them by name, one is a managing director, four are directors and two are vice presidents. A U.K. unit agreed to plead guilty to a wire-fraud charge as well.
“Deutsche Bank employees engaged in a widespread effort to manipulate benchmark interest rates for financial gain,” DFS Superintendent Benjamin Lawsky said in a statement. “We must remember that markets do not just manipulate themselves: It takes deliberate wrongdoing by individuals.”
Geez, if I commit fraud, fraud so blatant that somebody thinks they can actually prove it in an actual court, I may well go to jail. Those guys are lucky they worked for a firm willing to help lower tax rates in their host countries.
But, in the end, who cares?
In a way it’s a shame that the Libor settlements are mostly about collecting and typesetting embarrassing instant messages. The interesting question in Libor manipulation is whether it caused a net harm: Did Bank X push Libor up while Bank Y pushed it down in ways that mostly reflected and equilibrated underlying interest-rate market dynamics? Or did the banks mostly work together in a way that systematically enriched them as a group at the expense of their clients as a group?
This seems like a very hard question, but also one that is of curiously little interest to the regulators. Among those regulators, the U.K. FCA has the most detailed mechanism for determining penalties; it is explicitly supposed to consider “the amount of benefit gained or loss avoided.” It completely shrugged off that determination for Deutsche Bank:
Deutsche Bank sought to manipulate LIBOR and EURIBOR submissions in order to improve the profitability of its trading positions. The Authority has not determined the amount of benefit gained.
Isn’t that question — for Deutsche Bank, and for the Libor-manipulating banks as a whole — the important one? Shouldn’t the Libor manipulating banks be assessed on the economic impact of their manipulation, and not just on who had the most bad quotes?
Eric Scott Hunsader of Nanex has released two charts showing Sarao’s (alleged, at this point) spoofing on Flash Crash Day:
Click for Big
Click for Big
He also states (in three separate tweets):
I now believe Nav Sarao may have been screen trading – though each click would result in placing/cancelling many orders
…
I don’t think Sarao used an automated trading system and could in fact have been trading as he claims (I was wrong yesterday)
…
Actually, I’m going with a hybrid – the spoofing algo was automated and running background, while Sarao click traded positions
Getting back to my main point in all this – that anti-spoofing rules are clearly unenforceable by regulatory measures and should be scrapped – we can allow ourselves to wonder just how fast the spoofing detection algorithm used to produce those two charts is; whether it could run in anything close to real time; and how many false-positives and false-negatives it might be expected to produce. If it could be done in real-time with reasonable accuracy, that would be a very good thing for HFT. Of course, there’s not much time:
Click for Big
Look at the time scale on the X-axis! The spoofs last less than a second.
From Alberta to Australia, politicians all look the same:
Even for a country with a history of commodity booms, this one was gargantuan.
Over the decade to 2013, Australia racked up $1 trillion in extra exports from the previous 10 years, thanks largely to China’s once-insatiable demand.
Despite the opportunity of funding infrastructure to meet the needs of millions of new citizens, the nation largely blew the extra cash on month-to-month spending. The added A$300 billion ($232 billion) in government revenue generated from the boom went to things like tax cuts and subsidies.
It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts off 10bp, FixedResets up 49bp and DeemedRetractibles gaining 1bp. ENB, BAM and TRP FixedResets are all prominent on the Performance Highlights table, which is comprised exclusively of winners. Volume was high.
For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.
Remember that all rich /cheap assessments are:
» based on Implied Volatility Theory only
» are relative only to other FixedResets from the same issuer
» assume constant GOC-5 yield
» assume constant Implied Volatility
» assume constant spread
Here’s TRP:
Click for Big
TRP.PR.E, which resets 2019-10-30 at +235, is bid at 22.51 to be $0.39 rich, while TRP.PR.B, resetting 2015-6-30 at +128, is $0.56 cheap at its bid price of 14.45.
Click for Big
Another excellent fit, but the numbers are perplexing. Implied Volatility for MFC continues to be a conundrum, although it declined substantially today. It is still too high if we consider that NVCC rules will never apply to these issues; it is still too low if we consider them to be NVCC non-compliant issues (and therefore with Deemed Maturities in the call schedule).
Most expensive is MFC.PR.M, resetting at +236 on 2019-12-19, bid at 23.50 to be $0.77 rich, while MFC.PR.K, resetting at +222bp on 2018-9-19, is bid at 21.40 to be $0.73 cheap.
Click for Big
This fit has deteriorated.
The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 19.30 to be $0.66 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 22.30 and appears to be $0.81 rich.
Click for Big
FTS.PR.H, with a spread of +145bp, and bid at 15.81, looks $0.69 cheap and resets 2015-6-1. FTS.PR.M, with a spread of +248bp and resetting 2019-12-1, is bid at 24.22 and is $0.48 rich.
Click for Big
Investment-grade pairs now predict an average over the next five years of about 0.40%, but TRP.PR.A / TRP.PR.F is an outlier at -0.27% The DC.PR.B / DC.PR.D pair retains its customary outlier status, with a breakeven rate of -1.47%.
Click for Big
Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?
| HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly |
|||||||
| Index | Mean Current Yield (at bid) |
Median YTW |
Median Average Trading Value |
Median Mod Dur (YTW) |
Issues | Day’s Perf. | Index Value |
| Ratchet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.4005 % | 2,172.2 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.4005 % | 3,798.1 |
| Floater | 3.34 % | 3.54 % | 57,211 | 18.44 | 4 | -0.4005 % | 2,309.3 |
| OpRet | 4.43 % | -2.24 % | 38,178 | 0.11 | 2 | 0.0000 % | 2,762.6 |
| SplitShare | 4.57 % | 4.54 % | 65,865 | 3.39 | 3 | -0.2530 % | 3,223.7 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0000 % | 2,526.1 |
| Perpetual-Premium | 5.33 % | 2.22 % | 66,168 | 0.09 | 25 | -0.0476 % | 2,514.9 |
| Perpetual-Discount | 5.11 % | 5.11 % | 140,004 | 15.05 | 9 | -0.0989 % | 2,791.3 |
| FixedReset | 4.60 % | 3.93 % | 296,315 | 16.31 | 85 | 0.4902 % | 2,323.9 |
| Deemed-Retractible | 4.92 % | 3.30 % | 110,094 | 0.82 | 36 | 0.0100 % | 2,647.3 |
| FloatingReset | 2.58 % | 2.94 % | 72,878 | 6.23 | 8 | 0.1712 % | 2,350.1 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| ENB.PR.Y | FixedReset | 1.01 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-23 Maturity Price : 19.09 Evaluated at bid price : 19.09 Bid-YTW : 4.55 % |
| TD.PF.C | FixedReset | 1.09 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-23 Maturity Price : 22.37 Evaluated at bid price : 23.15 Bid-YTW : 3.48 % |
| TD.PF.A | FixedReset | 1.12 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-23 Maturity Price : 22.57 Evaluated at bid price : 23.50 Bid-YTW : 3.43 % |
| TRP.PR.E | FixedReset | 1.12 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-23 Maturity Price : 22.01 Evaluated at bid price : 22.51 Bid-YTW : 3.80 % |
| ENB.PF.E | FixedReset | 1.18 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-23 Maturity Price : 20.52 Evaluated at bid price : 20.52 Bid-YTW : 4.66 % |
| ENB.PR.D | FixedReset | 1.39 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-23 Maturity Price : 18.91 Evaluated at bid price : 18.91 Bid-YTW : 4.51 % |
| SLF.PR.I | FixedReset | 1.40 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.67 Bid-YTW : 3.93 % |
| PWF.PR.T | FixedReset | 1.40 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-23 Maturity Price : 23.13 Evaluated at bid price : 24.61 Bid-YTW : 3.37 % |
| TRP.PR.A | FixedReset | 1.55 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-23 Maturity Price : 19.60 Evaluated at bid price : 19.60 Bid-YTW : 3.73 % |
| BAM.PF.A | FixedReset | 1.56 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-23 Maturity Price : 22.61 Evaluated at bid price : 23.39 Bid-YTW : 4.15 % |
| BAM.PF.F | FixedReset | 1.63 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-23 Maturity Price : 22.67 Evaluated at bid price : 23.68 Bid-YTW : 4.08 % |
| ENB.PR.B | FixedReset | 1.71 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-23 Maturity Price : 18.46 Evaluated at bid price : 18.46 Bid-YTW : 4.61 % |
| TRP.PR.D | FixedReset | 1.76 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-23 Maturity Price : 22.03 Evaluated at bid price : 22.50 Bid-YTW : 3.75 % |
| TRP.PR.C | FixedReset | 1.90 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-23 Maturity Price : 16.60 Evaluated at bid price : 16.60 Bid-YTW : 3.74 % |
| ENB.PF.G | FixedReset | 1.94 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-23 Maturity Price : 21.00 Evaluated at bid price : 21.00 Bid-YTW : 4.58 % |
| TD.PF.B | FixedReset | 2.09 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-23 Maturity Price : 22.59 Evaluated at bid price : 23.50 Bid-YTW : 3.43 % |
| MFC.PR.M | FixedReset | 2.17 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.50 Bid-YTW : 4.40 % |
| BAM.PF.E | FixedReset | 2.53 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-23 Maturity Price : 21.85 Evaluated at bid price : 22.30 Bid-YTW : 4.11 % |
| BAM.PR.X | FixedReset | 5.25 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-23 Maturity Price : 17.63 Evaluated at bid price : 17.63 Bid-YTW : 4.13 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| TRP.PR.C | FixedReset | 97,975 | RBC crossed 55,600 at 16.30. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-23 Maturity Price : 16.60 Evaluated at bid price : 16.60 Bid-YTW : 3.74 % |
| BNS.PR.Z | FixedReset | 68,230 | Scotia crossed 60,800 at 22.10. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.17 Bid-YTW : 4.35 % |
| SLF.PR.G | FixedReset | 63,805 | Desjardins crossed 47,400 at 16.50. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 16.42 Bid-YTW : 7.30 % |
| HSE.PR.A | FixedReset | 59,445 | RBC crossed 49,700 at 15.60. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-23 Maturity Price : 15.55 Evaluated at bid price : 15.55 Bid-YTW : 4.35 % |
| RY.PR.J | FixedReset | 58,826 | RBC crossed 50,000 at 24.77. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-04-23 Maturity Price : 23.09 Evaluated at bid price : 24.81 Bid-YTW : 3.50 % |
| BNS.PR.L | Deemed-Retractible | 55,756 | RBC crossed 50,000 at 25.28. YTW SCENARIO Maturity Type : Call Maturity Date : 2016-04-27 Maturity Price : 25.00 Evaluated at bid price : 25.25 Bid-YTW : 3.41 % |
| There were 50 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| ENB.PF.G | FixedReset | Quote: 21.00 – 22.30 Spot Rate : 1.3000 Average : 0.7404 YTW SCENARIO |
| TRP.PR.E | FixedReset | Quote: 22.51 – 23.30 Spot Rate : 0.7900 Average : 0.5615 YTW SCENARIO |
| BAM.PF.G | FixedReset | Quote: 23.67 – 24.20 Spot Rate : 0.5300 Average : 0.3200 YTW SCENARIO |
| TD.PF.A | FixedReset | Quote: 23.50 – 23.98 Spot Rate : 0.4800 Average : 0.3210 YTW SCENARIO |
| BAM.PF.B | FixedReset | Quote: 21.41 – 21.78 Spot Rate : 0.3700 Average : 0.2463 YTW SCENARIO |
| PWF.PR.A | Floater | Quote: 17.55 – 18.09 Spot Rate : 0.5400 Average : 0.4188 YTW SCENARIO |